This article first appeared in The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024

WITH its land bank almost exhausted after launching its remaining two property development projects, builder Kerjaya Prospek Group Bhd (KL:KERJAYA) (KPGB) has started scouting for large land parcels in the country.

In an interview with The Edge, KPGB co-founder and non-executive chairman Datuk Tee Eng Ho says talks between the group and several landowners to buy land — to develop either on its own or on a joint-venture (JV) basis — are ongoing. “It can be an outright purchase or a JV. An acquisition this year is possible although there is nothing firmed up yet. But when we do embark on a development project, it would be a big one with a gross development value (GDV) of at least RM1 billion and it would be a mixed-use development,” he says, declining to reveal the location of the potential land acquisitions.

As at end-March 2024, KPGB’s net cash position was RM213.5 million. It is sitting on RM242.2 million cash reserves, with short-term borrowings of RM28.7 million.

KPGB is controlled by the Tee family, who have 68.04% of the group’s shares through Amazing Parade Sdn Bhd (18.29%) and Egovision Sdn Bhd (49.75%). The Employees Provident Fund Board is KPGB’s second largest shareholder with a 5.526% stake.

Tee, 59, is also the largest shareholder of premium property developer Eastern & Oriental Bhd (KL:E&O), holding 69.56% equity interest through Amazing Parade, Javawana Sdn Bhd, Kerjaya Prospek Development (M) Sdn Bhd and Summerchrome Sdn Bhd. As for Kerjaya Prospek Property Bhd (KL:KPPROP), he owns a 61.432% stake through Tee family-owned private vehicle Javawana.

Asked how he maintains a fine balance between KPGB and Kerjaya Prospek Property when it comes to new land acquisitions, Tee says the latter will be given priority to expand its land holdings. Kerjaya Prospek Property currently has 61 acres, providing RM3.5 billion in potential GDV over the next three to five years.

“As long as their (Kerjaya Prospek Property’s) gearing is not too high, they can continue to borrow (money, buy) and develop the land. If not, KPGB will come in to buy the land as the group currently has no gearing. Or if the size of the project is too big for Kerjaya Prospek Property to undertake, KPGB can come in. In fact, we are waiting for the opportunity to buy land if there’s any,” he notes.

Kerjaya Prospek Property’s net gearing ratio stood at 0.18 times as at March 31, 2024, with cash and equivalents of RM90.7 million and borrowings totalling RM218.0 million.

As for E&O, Tee says it will focus on developing prime residential properties on Penang Island and in Kuala Lumpur city centre. As at end-March 2024, it had a net debt of RM1.1 billion and a net gearing ratio of 0.5 times.

He says while KPGB, one of the leading construction companies in the country, will prioritise its construction business, it will continue to be involved in property development activities as both businesses are complementary to each other. As such, the group will continue acquiring land parcels for future development.

“Property development offers a boost to KPGB’s return on equity (ROE), creating value for the shareholders. After all, I am one of the major shareholders. But I will make sure that I do not raise the group’s gearing too much.”

Tee notes that ideally, he wants the property development division to account for 20% to 30% of the group’s total revenue and the remainder to come from the construction segment.

Currently, KPGB’s two ongoing projects are The Vue @ Monterez condominium in Shah Alam, Selangor, with a GDV of RM300 million, and Papyrus @ North Kiara condominium in KL, with a GDV of RM500 million. The take-up rate for The Vue @ Monterez stood at around 60% as at Dec 31, 2023, while Papyrus @ North Kiara project was soft-launched in March.

Tee says sales at The Vue @ Monterez will continue to contribute to the group’s revenue this year while Papyrus @ North Kiara will contribue over the next two years.

KPGB is optimistic about the future, fuelled by organic growth. The group has an outstanding order book of RM4.5 billion, which will keep it busy over the next three to four years. According to Tee, it is not looking for acquisition targets right now.

KPGB posted a 15% increase in net profit for the financial year ended Dec 31, 2023 (FY2023) to RM131.52 million from RM114.8 million in the previous year, on higher revenue recognition from the construction and property development segments. Revenue rose 31% year on year to RM1.47 billion in FY2023.

Bloomberg data shows that analysts are forecasting a net profit of RM171.5 million for FY2024, surpassing its previous record of RM140.2 million set in FY2019.

Of KPGB’s revenue of RM337.1 million in 1QFY2024, E&O projects made up 17%, and 12% was derived from Kerjaya Prospek Property. The balance came from external parties’ construction jobs.

“About 38% of the group’s outstanding order book is secured from related parties (namely Kerjaya Prospek Property and E&O). We expect contributions from related parties to increase because of E&O’s Andaman Island development project, as well as new property projects from Kerjaya Prospek Property. Ideally, related parties’ contribution should be about 60% to 70% including KPGB’s own developments and the remaining 30% to 40% would come from external contracts,” says Tee.

To date, KPGB’s largest construction job is a RM1.45 billion contract from Texas Instruments Electronics Malaysia Sdn Bhd to construct a factory in Melaka. It had clinched the job through its JV with Samsung C&T (KL) Sdn Bhd in October 2022, which also marked the group’s entry into building industrial properties.

Tee says Malaysia has emerged as a key beneficiary of the “China Plus One” strategy where businesses seek to reduce the risks associated with full reliance on China’s market or supply chain.

“We see many foreign electrical and electronics (E&E) companies and manufacturers setting up their factories here, as well as technology firms setting up new data centres, especially in Johor,” he says, noting that KPGB is actively pursuing data centre construction projects.

Tee does not think the current boom in the data centre market — as operators rush to accommodate the rise of artificial intelligence — is a concern as all the data centres have “takers”.

Nevertheless, he points out that KPGB is poised for continued growth for at least the next five years because of reclamation works for the Andaman Island development project, also known as Seri Tanjung Pinang Phase 2 (STP2), in Penang.

“There are also other potential infrastructure jobs from the Andaman Island development such as three bridges linking the island, roads as well as other residential projects to be constructed there. The GDV of the Andaman Island development is some RM70 billion over (the estimated development period of) 30 years, which works out to RM2.3 billion of GDV each year. Assuming the construction cost of the project is about RM1 billion a year, it is expected to sustain KPGB’s earnings for at least another 30 years, that is, if it were to secure all of E&O’s jobs.

“This is not counting potential new construction jobs from Kerjaya Prospek Property and from KPGB’s own property development projects,” he adds.

According to Bloomberg, of the eight analysts covering KPGB, seven have a “buy” rating and one a “hold”, with an average price target of RM2.08 — indicating a potential upside of 15% from last Thursday’s closing price of RM1.81. Shares of KPGB have risen 17% so far this year. At the close of trading last Thursday, its stock was valued at RM2.3 billion with a price-earnings ratio of 16.74 times.

Rakuten Trade likes KPGB for its strong order book visibility; innovative construction solutions and efficient cost structure, leading to above-average profit margins; the hands-on management team with a history of successful project execution; and the group’s consistent ability to secure external contracts.

“We expect KPGB to target job wins of about RM1.5 billion for FY2024. Year to date, KPGB has secured contracts totalling RM978.7 million. Additionally, it is also exploring opportunities in infrastructure work in Andaman Island, amounting to RM2 billion,” the research house says in a June 26 report, noting KPGB’s decent dividend yield of above 4%.

KPGB has consistently exceeded its dividend payout policy of a minimum 25% of net profit. Its dividend per share (DPS) stood at eight sen for FY2023 and 2.5 sen for 1QFY2024, translating into a payout ratio of 76.3% and 94% respectively. Analysts are expecting a DPS payout of 8.7 sen and 8.9 sen for FY2024 and FY2025, translating into a dividend yield of 4.8% and 4.9% respectively.

As more property developers look to expand their property development portfolio overseas, KPGB and Kerjaya Prospek Property will remain focused on the domestic market, Tee says. “There are still plenty of opportunities for growth here. Even personally, I don’t invest overseas. I invest everything here.”

On E&O’s real estate investments and developments in Central London, including the 54-unit Lincoln Suites, Princes House along Kingsway near Covent Gardens, ESCA House in Bayswater and a vacant parcel of commercial property in Hammersmith, Tee says he has not expanded its overseas portfolio since he took control of the group in 2021.

Tee and his brother Datuk Tee Eng Seng — via Amazing Parade — had acquired Sime Darby Bhd’s last block of a 10.89% stake in E&O for RM93.5 million in March that year. The purchase brought the combined shareholding of Amazing Parade and persons acting in concert to 42.71% from 31.82%, thus triggering the 33% mandatory general offer threshold.

“We will keep the assets for now. If the price is right, I will sell (them). But I will not conduct a ‘fire sale’,” he says.

Tee is also the executive chairman of E&O. Asked how he juggles his time between the three companies, he says KPGB, E&O and Kerjaya Prospek Property have separate leadership teams in place.

At KPGB, Tee’s brother Tee Eng Tiong is the executive director and CEO, while Tee’s spouse Datin Toh Siew Chuon is executive chairperson of Kerjaya Prospek Property. She is also an executive director of KPGB.

“At E&O, we have myself, managing director Kok Tuck Cheong and a professional team to lead the company. Meanwhile, Eng Seng is executive director of all three listed companies — KPGB, E&O and Kerjaya Prospek Property,” he adds.

“All three companies were recently relocated into one building (Menara Vista Petaling in KL). Any problem, we can sort it out fast. But I spend more time on E&O. We create a lot of value here. We need to brainstorm and come up with new ideas on the development side. There are quite a lot of things we need to do, especially now that we are in the reclamation stage (for the Andaman Island development). KPGB is more mature.”

Meanwhile, Tee says KPGB’s capital spending for FY2024 will be “similar to previous years’ of between RM30 million and RM40 million”. Last year, its capital expenditure (capex) stood at RM32 million. “We have reached a mature stage where we have invested in our plants and equipment such as tower cranes. Our annual capex will be used primarily for equipment replacement.” 

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